Here’s why childhood is an important time to learn about money

Last summer, we learned that U.S. teenagers are in the middle of the pack when it comes to financial literacy, compared to other nations. Preparing young people for a solid financial future is an important job. And much work remains.

Some recent research looks at how young people build financial skills, habits, and attitudes. The research also emphasizes how parents can model and teach helpful financial habits to their children at an early age.

Here are some key takeaways from researchers that you can put into practice:

Children as young as five can learn about saving

Research suggests that children are “developmentally capable” of saving by age five. A piggy bank or savings account gives them a hands-on way to build a savings mindset. And parents take note: your child may acquire a taste for financial planning that lasts well into adulthood. The same research shows that children who grew up with a savings account were more likely to hold “diverse asset portfolios and to accumulate more savings as young adults.” That’s a powerful piggy bank!

An allowance isn’t just about money, it’s about guiding your child

Access to money from gifts or from a steady allowance, by itself, may not help your child build habits he or she will need as an adult. Research observed that giving an allowance on its own was an ineffective way to build a child’s financial skills—the benefits came when the child also got guidance on saving and budgeting along with the allowance. According to the research, “parental oversight as to how the money is spent, and parental teaching about budgeting and the necessity of saving, was found to be most effective.” So when you provide opportunities for saving and spending, talk to your children about their decisions.

Young people learn from hands-on experiences

Teenagers can practice financial skills and decision-making. As they manage their first paychecks, and the spending and saving choices that go along with them, parents are still a sounding board. Listening and providing guidance to your teenager can provide a safety net, so that he or she can learn from experiences and mistakes (let’s be honest, there are bound to be a few).

Young adults learn financial skills more and benefit when they have opportunities to make their own financial decisions, while still receiving guidance and feedback. For example, a program that included connecting economically disadvantaged youth to a job and savings account, and providing just-in-time financial education, showed promising results. Youth experienced “both an increase in knowledge and an increase in the application of that knowledge.”